kddl ltd share price Management discussions

an overview of the economy and business events

Global Economy

Global growth, according to the IMF, is expected to slow from 6.1 percent in 2021 to 3.6 percent in 2022 and 2023. Over the medium term, global growth is expected to slow to around 3.3 percent after 2023. Importantly, this forecast assumes that the conflict continues to remain contained within Ukraine, that additional sanctions on Russia are not imposed, and that the pandemics health and economic effects fade over the course of 2022.

Ukraines war has triggered a costly humanitarian crisis that must be resolved peacefully. The conflicts economic costs will contribute to a significant slowdown in global growth in 2022. A severe double-digit drop in GDP for Ukraine and a significant contraction in Russia are almost certain, as are global spillovers through commodity markets, trade, and financial channels. As central banks tighten policy, interest rates are expected to rise, puffing pressure on emerging market and developing economies.

Inflation is expected to remain high for a longer period of time than expected, owing to war-induced commodity price increases and broadening price pressures.

Indian Economy

The recovery in domestic economic activity is gathering strength. Rural consumption should benefit from the likely normal south-west monsoon and the expected improvement in agricultural prospects. A rebound in contact-intensive services is likely to bolster urban consumption. Investment activity is expected to be supported by improving capacity utilisation, the governments capex push, and strengthening bank credit. Growth of merchandise and services exports is set to sustain the recent buoyancy. Spillovers from prolonged geopolitical tensions, elevated commodity prices, continued supply bottlenecks and tightening global financial conditions nevertheless weigh on the outlook. The real GDP growth projection by National Statistical Office for 2022-23 is retained at 7.2 per cent.

The geopolitical tensions have exacerbated at a time when the global economy was grappling with a sharp rise in inflation and consequent monetary policy normalization in major advanced economies. We, however, believe that Indias underlying economic fundamentals are strong and despite the short-term turbulence, the impact on the longterm outlook will be marginal. The results of growth-enhancing policies and schemes (such as production-linked incentives and governments push toward self-reliance) and increased infrastructure spending will start kicking in from 2023, leading to a stronger multiplier effect on jobs and income, higher productivity, and more efficiency-all leading to accelerated economic growth.

Furthermore, the emphasis on manufacturing in India, various government incentives such as lower taxes, and rising services exports on the back of stronger digitization and technology transformation drive across the world will aid in growth. Also, several spillover effects of geopolitical conflicts could enhance Indias status as a preferred alternate investment destination. On the health front, a large, vaccinated population will likely help contain the impact of subsequent infections waves, if any.

Overall, macro-economic stability indicators suggest that the Indian economy is well placed to take on the challenges of 2022-23. The growth in 2022-23 will be supported by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and availability of fiscal space to ramp up capital spending. The year ahead is also well poised for a pick-up in private sector investment with the financial system in a good position to provide support to the revival of the economy.

Swiss Watch Industry-2021

2021 saw a faster than expected recovery for Swiss watch exports. Performance was driven by very strong growth in the United States, alongside a steady upward trend in China, while numerous other markets continued to face sometimes significant difficulties.

The return to pre-crisis levels as early as September and positive performance in the fourth quarter produced the best- ever annual results for the sector, at 22.3 billion francs, 2.7% higher than in 2019 (+31.2% compared with 2020) and a 0.2% improvement over the 2014 record. While the Covid-19 pandemic continued to make its presence felt throughout the year, its consequences for the watch market proved less severe. Overall, luxury personal goods benefited from the sharp increase in demand in China and the United States, additional opportunities created by digitalization, the use of savings accumulated during the various lockdowns and more significant restrictions on luxury experiences, particularly tourism-related activities. While travel retail suffered from the decline in tourism, an increase in domestic purchases, a switch to digital channels and the development of the duty-free market in Hainan offset losses to some extent.

Products

Exports of wristwatches increased by 3.5% compared with 2019, to 21.2 billion francs. The number of items, however, continued to fall, to 15.7 million. This is a decline of 4.9 million (-23.8%) compared with 2019.

Watches priced at less 500 francs (export price) fell sharply, accounting for over 95% of the decline in volumes, with a 25.1% drop in their export value. The decline in value for watches priced between 500 and 3,000 francs was significantly less marked (-3.5%), while watches priced at over 3,000 francs grew by 9.7%.

Watches by price range

In spite of the still precarious health situation and less favourable macroeconomic prospects for the main markets, luxury personal goods should see increased demand in 2022. The strong results achieved last year -and even earlier, in 2020, in China - will nonetheless create a slightly unfavourable base effect. Given these factors and a still significant degree of uncertainty, the forecasts for Swiss watch exports are based on cautious optimism.

Indian Watch Industry

As per Technopak research & analysis, watch Market in India was valued at ~INR 13,500 Cr in FY 2020 and is expected to grow at a CAGR of 10.6% to reach ~ INR 22,300 Cr by FY 2025, on back of factors like increased discretionary spend on watches category, opening of more organized channels of purchase like MBOs and online market places & vertical specialists, increased penetration of smart watches in mid to premium category, omni channel market organization etc.

The Indian watch market is further segmented basis Product type and Price. On the basis of Product type, they are differentiated as Traditional watches (includes both Analogue and Digital Watches) and smart watches. While traditional watches occupy almost 76% share of the overall watch market, smartwatches hold 24% share, with the latter expected to grow a faster rate, owing to consumer demand, fitness & health consciousness, technological advancements linking the watch to other smart devices, and most importantly, the entry of multiple brands in the mass to mid segment smartwatch space which has given consumers the option to try out smartwatches without pushing into the premium segment.

Traditional Watches have been the mainstay of the segment attracting consumers across price points, gender & age groups. Brands have kept segment relevant through new launches attracting specific consumer groups targettng young consumers. Premium & Luxury segment is primarily dominated by traditional watches, which are bought by the consumers for their quality, legacy and brand value.

Price Segmentation of the Indian Watch market

The Indian Watch Market is estimated at INR 13,500 Cr. While sub-INR 5,000 mass and mid segment of watches account for ~30% of the market, Fashion segment (INR 5,000 - INR 25,000) accounts for ~21% of the market. The Premium, Bridge to luxury and Luxury segment are collectively estimated to contribute ~49% of the market. While the Mass & Mid segments account for a large value and volume share in the market, their growth is slow at 5-7%. On the other hand, Fashion & Premium Segments are growing at a CAGR of ~12%. The Luxury segments are growing faster than other segments at a CAGR of 13-14%.

Growth of E-commerce Enablement

The Covid-19 pandemic brought significant changes in the retailing preferences of Indian consumers by increasing the acceptability of shopping through online medium. Brands also accepted this change and improved their online infrastructure to ensure timely delivery of products. Emergence of logistic partners helped boost the penetration of ecommerce. This change is here to stay and is expected to grow, forming an additional channel for purchase. Brands in the Luxury watch segment have invested in their Partnerships with Retailers, Exclusive Brand Outlets, and have adopted an omni channel approach where customers can use e-commerce as a source of product discovery.

Outlook

Over the last decade, wrist watches have gained much popularity as a fashion accessory than a device for telling time. This recognition can be attributed to the high brand consciousness among millennial consumers, celebrity endorsement and aggressive marketing strategies adopted by fashion brands.

Rising share of organized players in luxury watch businesses, introduction of GST, aspirational lifestyle supported by rising disposable income will also lead to sustained growth for watch industry in India. Moreover, with the progressing retail landscape and increase in Internet retailing, the sale of wrist watches and within that the luxury & premium watch segment is anticipated to experience a swift increase in the Indian market.

business overview

KDDL Limited is the leading company in India in manufacture of watch components and emerging as a strong engineering company for manufacture of high-quality precision stamped components and progressive tools for various non-horological applications. KDDL also manages the largest retail chain luxury Swiss watches in the organized sector through its subsidiary, Ethos Limited.

The Companys revenues are primarily from manufacture of watch components, progressive tools, precision engineering components and sub-assemblies. An overview of the main numbers of the company and of different business segments is given below:

Revenue and Profitability

The net sales of the company witnessed a decent growth of 49.6% over previous year as the impact of COVID 19 diminished and market situation normalized from Qtr 2 onwards. The improvement in economic activities, both in domestic market and Swiss market was reflected in the revenue growth of the company and revenue was on growth trajectory quarter by quarter.

Rs. in Lacs	2020 -21	2021 -22
Business	Domestic	Export	Total	Domestic	Export	Tot al
Watch Component	2657	7241	9898	4759	10284	15044
Precision Engineering	2246	1056	3302	2243	2183	4425
Ornamental Packaging	470		470	983		983
Total	5373	8297	13670	7985	12467	20452

The value and trend of net sales of the various businesses of company during the last 3 years is as under:

The net sales revenue during the year was higher by 20% compared to financial year 2019-20, which was broadly a normal year of operations. The overall turnover of company from domestic market improved by 48.6% compared to a decline of 34% recorded in previous year. Exports turnover of the company was higher by 50.3% compared to a decline of 6% in the previous year.

Almost all the business segments of the company witnessed strong growth compared to the previous year. The turnover of watch component segment of company increased by 52% and 24% over the previous financial years 202021 and 2019-20 respectively. The growth in exports revenue of 42% was lower than domestic revenue growth of 79.1%, since during 2020-21, the exports revenue had not declined much (only 6.8%) compared to domestic revenue decline (39.1%), which reflected that the company has strong presence and relationship with the important Swiss customers and gained their confidence to serve with improved capabilities. Company revenue from exports was higher by42% compared to previous year (2020-21) and 32% compared to previous-to-previous year (2019-20), whereas the overall Swiss watch market had improved 31% and 2.7% respectively. It clearly establishes the fact that post COVID situation, company is gaining its market share both in domestic and exports markets and strengthening its position as an established supplier of quality products in the challenging and demanding market environment.

EIGEN, the precision engineering business of the company also witnessed an improvement of 34% (11% over financial year 2020)in revenue compared to previous year decline of 17.2%. The growth in revenue was only from the exports markets whereas the domestic market revenue remained stagnant at previous year levels. The market was sluggish as the manufacturing activity in major segments like aerospace, auto-ancillaries, consumer durables and electrical and electronics segments remained under pressure.

The revenue from exports market continues to increase rapidly and during the year the exports revenue was more than double of previous year and recorded a growth of 106.7%. Even during the previous year, the exports revenue had increased by 5.1% despite severe decline in all other business segments revenue. This increase in exports revenue is primarily due to major focus of the company to capture new segments and customers from electrical vehicles, solar industry, automotive and electrical segments to compensate the decline in aerospace business segment.

Our precision engineering business revenue is continuing to increase on quarterly basis. The order book position is healthy and likely to improve further with the improvement in economic conditions and consumption increase. Company is working with some of the major industrial players on emerging technologies and projects in different market segments which will help in faster recovery and growth of revenue and profitability.

Ornamental packaging manufacturing businesses of the company, catering mainly to the domesfic market,witnessed a sharp improvement in demand and revenue improved by 109% (15% compared to financial year 2019-20) compared to a decline of growth of 45% recorded in the previous year. The higher percentage growth in revenue is due to smaller base and capturing new and incremental business from the exisfing customers. There were no orders from the exports market. Company confinues to approach and high value premium quality customers, both in domesfic and export market.

The Companys overall strategy is to continue focus on increasing exports of watch components and to accelerate the growth of precision engineering business by capturing additional business from exisfing and new customers especially in the chosen market segments thru increased markefing efforts, both digitally and physically and continue improving internal efficiencies, reducing turnaround time, adding new capabilities.

FY 2021-22	Qtr-1	Qtr-2	Qtr-3	Qtr-4	Total (Rs. Cr.)
Revenue	46.24	52.97	56.80	61.95	217.96
EBIDTA	8.68	10.31	12.83	13.94	45.76
EBIDTA(%)	18.8%	19.5%	22.6%	22.5%	21.0%
Cash Profit	6.80	8.54	10.86	12.00	38.20
Profit before tax	3.90	5.65	7.93	9.02	26.50

FY 2020-21	Qtr-1	Qtr-2	Qtr-3	Qtr-4	Total (Rs. Cr.)
Revenue	20.99	34.57	40.83	50.50	146.89
EBIDTA	-0.54	6.14	8.73	12.04	26.37
EBIDTA(%)	2.6%	17.8%	21.4%	23.5%	18.0%
Cash Profit	-2.95	3.76	6.46	9.83	17.10
Profit before tax	-5.90	0.69	3.47	6.89	5.15

The trend of quarterly revenues, EBIDTA and profitability during the financial year 2021-22 and previous year 2020-21 was as under:

Prospects

Domesfic watch market during the year was robust except first quarter of the financial year, which was impacted by the COVID-19, and it confinues to show stability to improving trends. All major domesfic players are showing encouraging trends and the order posifion is healthy and improving. There are clear signs of shifting the sourcing from China and other Asian countries to domesfic sourcing. We are confident that this trend will continue, and the domesfic market and demand will remain robust during the year.

Based on the market and customer expectations, we are also accordingly enhancing of our capacity and capability to service the enhanced volume requirements from the domesfic market. We confinue to maintain focus on production and delivery of the high value watch components.

Swiss market continues to show a healthy recovery. The comparative data of first 5 months of 2022 versus 2021 shows a growth of 12.7% of watch exports. The Swiss watch exports for the period Jan - May 22 was CHF 9772.6 million as compared to CHF 8665.2 million recorded in 2021, showing a growth of 12.7%.

The trend of strong growth in the high price market segments is likely to continue whereas the lower end of the pyramid will continue to face volume decline. We are also accordingly preparing and realigning our product portfolio as per market trend and gradually moving up the value chain with improved design capabilities, faster response time and higher quality. We are also adding the capacity to meet the increased demand from export market segment and enhance capacity for the more complex feature requirements of Swiss customers.

The Company alsocontinues to put major thrust on better communication, innovatively using digital marketing and social media. The response and feedback from the customers have been encouraging and we plan to continue these initiatives with high rigor and enthusiasm.

In the Precision Engineering Business, EIGEN, the major focus of the company is to enhance revenue by increasing market presence through enhancement of the core capabilifies, improving value addition and aggressive markefing efforts. We have been enhancing our share of business from high value added and complex parts and components and moving into segments with long gestation period and high entry barriers. We have been successful in making entry in to supply of components for new and emerging segments in overseas markets especially electrical vehicles and solar energy. In addition, company is witnessing healthy order position and flow of RFQs from automotive and electrical segments.

The product portfolio and mix of different segments has undergone significant changes as some of sectors like aerospace and electronics segment confinue to remain severely impacted due to COVID-19. We expect that these segments may reach to normal levels over next few quarters.

We are witnessing healthy flow of enquiries and RFQs from the exports markets especially from Auto and Electrical segments. This trend may be due to "China + One" strategy of major global players. Domestic customers are witnessing relatively slow growth and recovery as their exports to developing countries is severely affected and the investments in infrastructure development industry is low.

We believe that the initiative of Atma Nirbhar Bharat with increased defense allocations and thrust on domestic sourcing will provide additional opportunities for EIGEN in the coming years.

The cost optimization initiatives undertaken by us during this crisis period has benefitted us with the lower cost structure and improved EBIDTA and PBT. This is also evident from the quarterly financial performance of the company. We strongly believe that with the new initiatives of the company to enhance market shares, by adding capacities, entering into new segments, addition of new customers, complex features and normalization of market conditions, the profitability of the company will remain healthier and become stronger.

Key Financial Ratios

During the year, the onslaught of COVID-19 diminished which led to recovery in the economic activities and improved market conditions. This resulted in healthy financial performance of the company, improved margins, strong liquidity and all critical financial parameters and ratios witnessed encouraging trend. The beginning of year had some impact of COVID-19 related lockdowns in the country and other major markets but the situation improved on quarter to quarter basis and with the normalization of the market conditions, the financial performance of the company was also on the improving trend in each quarter.

The operational earnings before interest, depreciation, taxes and appropriations improved from Rs. 267 millionto Rs. 460 million, an increase of73% over the previous year. The operating EBIDTA earning after eliminating the exceptional, abnormal cost and CSR expenditure increased from 18.1% to 21.0%. The increase in EBIDTA percentage was due to decent growth in revenue, change in the revenue mix of the different business segments, especially the increase in export revenue and controlled costs.

• Debtors Turnover and Average Collection Period

During the year average debtors turnover ratio improved from 5.2 times to 5.7 times and average collection period also reduced from 69 days to 63 days. The ratio of the company also has a direct linkage with the revenue mix from different business segments as some of the business segments have a higher credit period.

• Inventory Turnover and average inventory holding period.

During the year inventory turnover increased substantially from 1.3 times to 2.1 times and the average inventory holding period decreased from 9.3 months to 5.7 months. These inventory levels are healthier than pre-covid 19 situations. The improvement in inventory turnover and holding periods is mainly due to stringent initiatives for sourcing procedures, rescheduling, and revisit of the MOQs, higher domestic sourcing, utilisation of old inventory and partially due to supply chain and delivery constraints from the global suppliers.

The inventory holding requirements is typical for our business due to smaller lot quantities and MOQ requirements of the most suppliers. In addition, due to variety of feature and complexities, different material and inputs are required to be stored for meeting the requirements of the customers.

• Interest Coverage

During the year interest coverage ratio on the normalised profit of the company improved from 3.1 to 6.8 due to reduction in interest costs and improved financial performance of the company. The company liquidity position and servicing of the financial obligations remained very healthy during the year.

• Current Ratio

During the year current ratio of the company improved marginally from 1.13 to 1.17 times due to improved financial performance and liquidityof the company. During the year, company has entered into an agreement with material subsidiary Ethos Ltd for the sale of brand and trademark "Ethos" and "Summit" to Ethos Ltd at an agreed consideration of Rs. 39 Cr and one third of the amount (Rs. 13 Cr) was received as advance against sale of the brand. This advance is reflected as current liability in company financials. If this advance is excluded from current liabilities, the current ratio of the company improved from 1.13 to 1.38. The current ratio excluding the current maturities of non-current borrowings improved from 1.58 to 1.60 times (2.0 if advance against sale of brand is excluded from current liabilities). The current maturities of the non-current borrowings generally remain around the same levels as debt / deposits are replaced with the alternate borrowings. The current ratio of the company continues to remain healthy as per banking norms as well as industrial trends.

• Debt Equity Ratio

During the year secured debt (including working capital bank borrowings) to Equity ratio of the company reduced from 0.30 to 0.20 and total debt to equity decreased from 0.45 to 0.32 due to restricted borrowings by the company. Debt-equity ratio of the company continues to be very healthy compared to the general industry trends.

• Operating Profit Margin (%)

During the year normalised operating profit margin of company increased significantly from 10.7% to 16.7% as the impact of COVID-19 subsided and the marker situations normalised leading to healthy growth in revenue and profitability. The financial performance and situation were on improving trend every quarter during the year. The gross margin of company remained stable at 72% as recorded in previous year.

The financial performance ratios are on the improving trend is clearly visible from the fact that the EBIDTA of the company improved from 18.8% in Qtr-1 to 22.5% in Qtr-4.

• Net Profit Margin (%)

During the year, the normalized net profit before tax after excluding the abnormal and exceptional non-operations items and CSR related expenses improved drastically from 3.6% to 12% as the revenue of the company reached near normal level of operations and company continued to control and restrict the corresponding increase in overheads. In addition, company is gradually moving up the value chain and improving its average selling price in all business segments.

• Shareholders Funds

The companys reserves improved from Rs. 1613 million as on 31st March 2021 to Rs. 2030 million as on 31st March 2022, on account of retained earnings from the profitability of the company, share premium from the allotment of 10,86,956 equity shares of face value of Rs. 10 per share at a premium of Rs. 220 per share on rights basis.

The Share capital of the company increased from Rs. 117.37 million to Rs. 128.24 million.

• Loan Funds and Cost of Debt

The interest cost as a percentage to total revenue decreased from 4.8% to 2.5% in 2021-22. The interest cost as a percentage to total revenue decreased primarily due to sharp improvement in the revenue, operational profitability, and healthy liquidity position of the company. The prevailing interest rates in the market during the year were also the on the reducing trend but the lenders were hesitant and lagging to pass on the benefits to the end customers. During the year, company renegotiated the interest rates with all the lenders and were successful in getting the reduction in line with the market trends, but these lower rates were available only for partial period of the year. During the year, company also decreased the effective interest rate on deposits from members in line with the reduction in rates by other lenders. The overall level of unsecured debt by way of deposits from members is on the increasing trend and the mix of unsecured debt versus other secured debt impacts overall interest cost of the company.

The liquidity position of the company also improved during the year as company enhanced its equity by allotment of shares under rights issue and raised Rs. 25 crore from the proceeds of the issue.

Company continues to reduce its high costs debts and working capital borrowings by effective utilization of available funds. All new debt borrowings of the company are being negotiated and concluded at lower interest rates. The overall simple average cost of debt reduced from 9.5% in previous year to 8.2%during the year.

The Company continues to focus and explore alternate means of finance for reducing effective cost of borrowing. The company continues its efforts on restricting the overall borrowing of the company for better leverage.

• Fixed Assets

Gross Fixed Assets (Both tangible and intangible) of the company including Capital work in progress during the year increased from Rs. 2071million to Rs. 2163 million. The value of tangible fixed assets increased from Rs. 1907 million to Rs. 2000 million, whereas the gross intangible assets increased from Rs. 434 million to Rs. 442 million. The value of right to use asset and investment property reduced from Rs. 1068 million and Rs. 28 million to Rs. 944 million and Rs. 12 million respectively. The value of capital work in progress increased from 112 million to Rs. 229 million respectively.

During the year, the capital expenditure of the company was selective and cautious due to uncertain economic and market environment. Some capital expenditure was done on expanding the capacity as per market requirements in our watch components business and other normal capital expenditure in the different units for increasing productivity, new product developments and addition of other assets for quality, safety, Information technology and administrative functions.

subsidiary companies and joint ventures

Ethos Limited

Ethos is Indias leading luxury and premium watch retail player, providing customers with a content-led luxury retail experience via online and physical store presence. In addition to the 50 physical retail outlets in 17 cities throughout India, the company provides an Omni channel experience to its customers Companys website and social media channels. Ethos offers the greatest range of premium and luxury watches in India, covering more than 50 watch brands under its offerings.

The Companys consolidated revenue from operations during the financial year 2021-22 stood at Rs 577.28 Crores, gross margins stood at 28.78%. In response to COVID-19 and its impact, we quickly adapted and evolved our business operations. The Company is experiencing a rise in demand primarily in the Luxury and High - Luxury products which has also shown in the increase in % of contribution of Luxury and high Luxury to total sales. This has led to more people coming to stores and experiencing the greater product with greater values. The Company ensures maintenance of the necessary COVID-19 protocols. Our Digital led business has ensured the growth of the company and have helped to minimise the impact of lockdowns. Even during the lockdowns in Q1FY22, the company is able to cover 90% of its pre- covid level revenue.

During the year, the Company opened 6 stores (including one lounge for Certified Pre-owned watches) and closed 2 under performing stores. The total count of stores increased to 50 from 46.

The Company continued to use its digital communication capabilities to leverage our strong network of physical stores and continued to address consumer demand for premium and luxury watches across the country. The Company is cognizant of the fact that going forward the omni-channel platform of sales is going to play a crucial role as most customers now seamlessly move between online and offline spaces even for the purchase of luxury watches. Internet- led billings contributed ~33% of the Companys billings. The Company will continue to innovate and invest on marketing through digital mediums to keep the overall engagement high.

Brands at ETHOS: Ethos continues to enjoy very positive and strong relationships with over 50 global watch brands which allows us to offer the widest and deepest selection of premium and luxury watches in the Indian market. Many of these brands are available only at Ethos stores and these exclusive brands play a pivotal role in the consumer strategy and growth of the Company.

Certified Pre-Owned Watches: This segment is a great growth vector for the watch industry as it adds to the overall industry size by promoting multiple ownership of watches and allowing a large population of first-time watch enthusiasts to buy into the luxury segment at a lower investment. According to industry experts, the business of preowned luxury watches is already 33 percent of the new watch business at a global level and is expected to become about half the size of the new watch industry in 3-4 years. In India your Company has the first mover advantage in this fast-growing segment and the unique benefit of an all-India sourcing platform together with state-of-the-art watch restoration and warrantying facilities. The Companys new website https://www.secondmovement.com already has 100,000 visitors on board. This has helped to grow the pre-owned watch business by 2.6 times against previous year. Over the next two years, Ethos plans to rapidly increase client base and expand the physical footprint to continue driving strong growth in the pre-owned business.

Loyalty Program: Companys loyalty program called CLUB ECHO is a customer relationship management initiative, which provides benefits to repeat customers based on their cumulative purchasing over time. The database generated via Club ECHO gives us access to important buying trends, which further enables Ethos to design appropriate communication strategies, leading to greater satisfaction and commitment. As of March 31, 2022, the Company had over 280,000 registered members in Club ECHO.

Pylania SA

During the financial year 2021-22, company continued with its existing streams of business revenue related to partial manufacturing of watch components, trading of watch components and accessories, consultancy, and advisory services.

The revenue of the company during the year improved significantly from CHF 1250 K to CHF 2622 K registering a growth of 110% over previous year. During the year, company continued to provide consultancy and managerial advisory services to customers also.

The management of Pylania continues to keep a close watch oncosts and improving its financial posifion and liquidity.

The operating profit of the company was CHF 276 K compared to profit of CHF 209 K during 2020-21, witnessing a growth of 32%.

During the year company has revalued its land and building at the prevailing prices in the market and created a provision of CHF 188 K to reflect the present value of the real estate.

Estima AG

The recently acquired Estima AG, is a renowned Swiss watch hands manufacturing facility in Grenchen, Switzerland. The primary objecfive and strategic decision to acquire the competitor in Switzerland was to enhance the market share and value of the company to Swiss customers considering the emerging opportunities after the implementation of the Swiss Origin regulafions w.e.f. 1st January 2017.

This acquisifion fits into the strategy of KDDL to expand its footprint in Swiss manufacturing and it is in a better posifion to turn it around with replicafing its strengths and capabilities from Indian operations and leveraging the exisfing strong customer relationships. The Swiss Origin regulafions will act as a catalyst for the revival and growth of this business unit.

The major focus of the company is on upgrading the facilities and re-energizing the teams for enhancing the revenue and profitability.

Post-acquisifion, company upgraded the facilifies by invesfing in new machines, equipments and renovation of the facilities. In addition, necessary changes were done in the management and key personnel of the company. Company has also provided necessary financial and technical support for ramping up the capabilities and performance.

Company is well positioned to gain additional business from reputed Swiss customers. Post-acquisifion, Company has also added the facility of supplying watch dials in addition to watch hands.

During 2021-22, company reported revenue of CHF 2556 K as compared to a revenue of CHF 2005 K in the 12 months ended period up to March 2021 registering a growth of 27%. The operating loss after tax of the company also increased from CHF 107 K to CHF 759 K, primarily due to major increase in manpower costs as post COVID 19 situafion normalization the manpower was engaged for the full time during the year and the Swiss government support for the manpower engagement declined. In addition, new manpower was engaged during the year for capturing the new opportunifies available in the market and enhancing the capability of the company to service high end customers with the new features.

The major focus of the company is to enhance the capability of the team and unit to service high end brands and capture new customers with addifional features and enhanced quality level, service standards. Company availed very limited manpower related financial support from Swiss government as the market situafion improved and engagement of the manpower was required at normal levels.

The revenue growth of the company coupled with the healthy order posifion, strong pipeline and encouraging enquiries and interest from the reputed potential customers strongly reinforces the belief of company that it can capture this opportunity with fast-track enhancement of operafional capacity and capability. Our strategy and acfion plan to revive this company and record growth and development are on the right direction and we remain confident that in the coming period with normalization of market conditions, enhancement of capacity and capability we will witness healthy growth of revenue and profitability.

Satva Jewellery and Design Limited

During the financial year, there was no change in business operafions or the status of the company.

The Board of Directors had approved a scheme of Amalgamation of its subsidiary Company namely "Satva Jewellery and Design Limited" with the Company under Secfion 230 to 233 of the Companies Act, 2013 ("the Act") with proposed appointed date of April 01, 2017.

The Nafional Company Law Tribunal (NCLT), Chandigarh Bench, had passed an order dated 15th October 2019 direcfing both the Companies that the scheme should be considered as per the procedure laid down in Secfion 232 of the Act. Accordingly, the Board of Directors of the Company at its meefing held on 3 d December 2019 and 26th May 2020 respecfively approved to file a new scheme of amalgamafion under secfion 232 together with other applicable provisions of the Act and the proposed appointed date has been changed from April 01, 2017, to April 01, 2019.

KDDL board and shareholders have already approved the merger of this company with parent company to bring synergy in the operafions and to ufilize its resources for creating value for shareholders. During the previous year, as per the direcfions of the Nafional Company Law Tribunal (NCLT), Chandigarh Bench, company had organized the meetings of the shareholders, secured and unsecured creditors and all stakeholders have approved the merger scheme with majority vote. Now the NCLT must consider these reports and direct the future course of action for merger with the parent company. We believe that as the situafion has normalized, the functioning of the courts will improve, and we expect to get the necessary statutory approvals for the merger with the parent company.

Human Resource Management

The skills and capabilities of our team remain our most valuable asset. KDDL seeks to attract and retain the best talent available. Human Resource Management incorporates a process driven approach that invests regularly in the training and development needs of employees through succession planning, job rotafion, on the job training and extensive training workshops and programs. Company has also engaged external consultants and advisors for the various intervenfions to improve and building the human capital for the emerging business requirements.

The Companys Talent Management process focused on building talent at various levels in the organization. Several professionals in different functions had been hired keeping in mind the companys future needs to build a leadership pipeline. Need based new people are being hired to build capabilities in new areas and to fill any gaps. As such, the Company has focused on developing internal talent through a robust idenfificafion process and with a clear development plan designed for each such talent.

During the year, company continued to provide necessary support, guidance, and mofivafion to bolster employee morale inculcate a feeling of teamwork and camaraderie and create a mechanism to recognize individual and team contributions to the organization. Employee recognition and reward programs for individual and team achievements were continued across the Group. The total manpower of the company, both regular and contractual was over 1700 during the year under review.

internal control systems and their adequacy

A strong internal control culture is an important focus and thrust area in the company. The company has comprehensive internal systems, controls and policies for all the major processes to ensure the reliability of financial reporting, timely feedback on achievement of operational and strategic goals, compliance with policies, procedures, laws, and regulafions, safeguarding of assets and economical and efficient use of resources.

The formalized systems of control facilitate effecfive compliance as per SEBI Lisfing Regulafions. The company also has well documented Standard Operating Procedures (SOPs) for various processes which are periodically reviewed for changes warranted due to business needs.

The Internal Auditor of the company confinuously monitors the efficacy of internal controls/ compliance with SOPs with the objective of providing to the Audit Committee and the Board of Directors, an independent, objective and reasonable assurance on the adequacy and effectiveness of the organizations risk management, control and governance processes.

The scope and authority of the Internal Audit activity are well defined in the Internal Audit scope and guidelines, approved by the Audit Committee. Internal Auditors develops a risk based annual audit plan with inputs from major stake holders, and the major focus areas as per previous audit reports.

All significant audit observations are reviewed periodically, and follow-up actions thereon are reported to the Audit Committee. The Audit Committee also meet the companys Statutory Auditors and Internal Auditors to ascertain their views on the financial statements, including the financial reporting system, compliance to accounting policies and procedures, the adequacy and effectiveness of the internal controls and systems followed by the company.

The top and senior management of the company also assesses opportunities for improvement in business processes, systems and controls, provides recommendations, designed to add value to the organization and follows up on the implementation of corrective actions and improvements in business processes.

The senior management of the company meets periodically to assess the performance of each business segment and key functions of the company and areas for improvement of performance / controls are identified and reviewed on continuous basis.

risks, threats and concerns

Risk means uncertainties about events and their outcomes that could have a material impact on the performance and projections of the Company. Since risk is inherent in every business, it is the Companys responsibility to minimize its incidence in order to protect and enhance shareholder value.

Our framework for combating risks recognizes that risks may be divided into two broad categories - risks that are common and relevant for most business in general and risks that are more specifically applicable to your company and business. The Risk Management Policy at KDDL inter-alia provides for Risk identification, assessment, and reporting and mitigation procedure. The Policy is continuously updated and adopted to the changing environment in which the Company operates.

Risks of General Nature

Risks relating to the general macroeconomic environment of the Company include risks associated with political and legal changes, changes in tax structures, and commercial rules & laws. The Company keeps a proactive track to anticipate such changes and mitigate associated risks to the extent possible.

Risks related to man-made and natural disasters such as explosions, earthquakes, storms as well as civil disturbances are handled by following best practices in the design of structures and "safety first" as a guiding principle while designing technical and business processes duly supplemented with requisite insurance coverage.

The third set of general risks relates to risks from market led changes. These include risks associated with sudden fall in GDP and growth rates, overall market condition in India and abroad, or sudden changes in market preferences. The mitigation of these risks is achieved by a cost-effective and flexible working structure which would allow the Company to scale up or scale down working in affected areas in accordance with the changes.

Specific Risks

We have identified the following specific risks that need more detailed attention in the present circumstances and business of the Company.

Risks due to decline in overall demand for watches: While we remain confident of a steady growth in demand of watches in India over the next 8~10 years, we are aware of the decline of the watch as a time keeping instrument. At the same time, we see an evident increase in the watch becoming an important fashion accessory and as an activity monitoring cum communicating instrument. The risk of such decline in the functional value of a watch is mitigated by positioning ourselves to better serve the watch as a fashion and wearable technology. We continue to upgrade our internal capabilities and processes to move up the value chain and align with the market expectations.

Risks pertaining to over dependence on few companies: The Company has enjoyed a close and mutually beneficial association with several leaders in the watch business in India and Switzerland. This inevitably has led to a substantial part of the Companys business being related to these groups.

Notwithstanding the strong standing of these brands and companies and our Companys enduring relationship with them, we recognize that broad basing our customer base and brand partner base is a priority to mitigate any inherent risk from over-dependence on any specific partner. As a part of this exercise, company continues to enhance its customer base and increasing its presence in the new fields and segments.

Risks related to over dependence on one business: The company is structurally focusing on increasing the revenue from other manufacturing business streams and strategically enhancing the growth of these segments, which will help in off settng the over dependence on the watch segment. In order to overcome the risks of over dependence on watch components, company is aggressively focusing on the business growth from other business segment of precision engineering components and adding new capabilities for enhancement of revenue stream.

Foreign Exchange Risks: About 60% of the Companys manufacturing turnover comes from exports, denominated in Swiss Francs and US Dollars. The fall and rise in these currencies can seriously impact the working of the Company in the short and medium term. The fall in the value of these currencies will have a significant impact on the export earnings in Rupee terms and thereby on the profitability of the Company. This risk is mitigated with several measures which include:

• Hedging of currencies to the extent reasonably possible, also keeping in mind natural hedge we enjoy by exporting and importing in the same currency.

• Balancing of imports and exports.

Risk related to Personnel: Our business is increasingly dependent on the skills and competencies of our employees and management team. The general war for talent in our growing economy has created a risk related to the retention of key personnel both in manufacturing and retail sector. This risk is mitigated through effective HR policies relating to recruitment and retention and a proactive remuneration and rewards policy that is periodically reviewed at the highest management level.

cautionary statement

Certain statements made in the "Management Discussion and Analysis Report" relating to the Companys objectives, projections, outlook, expectations, estimates and others may constitute "forward looking statements within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied. Important factors that could make significant difference to the Companys operations and actual results include among others, Government Regulations, statutes, tax laws, economic developments within India and countries in which the company conducts businesses, litigations, and other allied factors.